Page 78 - Accountancy for Advanced Secondary Schools Teachers Guide Form Five

3. Accounting methods
(a) Recording the transaction: Discuss the initial recognition
of the hire purchase agreement in the books of both the hirer
and the hire.
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(b) Interest calculation: Explain and demonstrate on how to
calculate the interest component of each instalment and the
principal repayment.

4. Journal entries
(a) For the hirer: Provide examples of journal entries to record
the initial acquisition, interest expense, instalment payments,
and eventual transfer of ownership.

(b) For the hire: Illustrate the journal entries to record the sale,
interest income, and receipt of instalments.

5. Initial recognition and measurement

(a) At inception: Teach how to recognise the hire purchase asset
and liability at the fair value of the asset or the present value
of minimum lease payments.

(b) Allocation of payments: Discuss the allocation of each
instalment between interest expense (or income) and the
reduction of the principal.

6. Subsequent measurement

(a) Depreciation: Explain how the hirer should depreciate the
hire purchase asset over its useful life.

(b) Interest allocation: Discuss methods for allocating interest
over the term of the hire purchase agreement, such as the
sum-of-the-digits method or the effective interest method.

Teacher’s Guide Form Five
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ACCOUNTANCY_TG_2024_FINAL DUMMY.indd 64 23/06/2024 17:45